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Thursday, August 19, 2010

The FY2011 Federal Budget

Mindy R. Levit
Analyst in Public Finance

While considering the FY2011 budget, Congress faces very large budget deficits, rising costs of entitlement programs, and significant spending on overseas military operations. In FY2008 and FY2009, the enactment of financial intervention and fiscal stimulus legislation helped to bolster the economy, though it increased the deficit. While GDP growth has returned in recent quarters, unemployment remains elevated and government spending on "automatic stabilizer" programs, such as unemployment insurance and income support, remains higher than historical averages. 

Between FY2000 and FY2009, federal spending accounted for approximately 20% of the economy (GDP) and federal revenues averaged 18% of GDP. In FY2009, the U.S. government spent almost $3.5 trillion (25% of GDP) and collected $2.1 trillion in revenue (15% of GDP). Between FY2008 and FY2009, outlays increased by $535 billion, while revenues fell by $419 billion. The deficit in FY2009 was $1,413 billion, or 9.9% of GDP, sharply higher than deficits in recent years. 

The current economic climate poses a challenge to policymakers shaping the federal budget. Numerous actions taken by the federal government in FY2008 and FY2009 have had major effects on the budget, including two major economic stimulus measures and a variety of programs within the Federal Reserve, Treasury, and Federal Deposit Insurance Corporation (FDIC). The impact of this legislation, along with any additional legislation enacted, will influence deficit levels in FY2010 and beyond. The final costs of federal responses to this turmoil will depend on the pace of economic recovery, how well firms with federal credit guarantees weather future financial shocks, and government losses or gains on its asset purchases. 

While many economists concur on the need for short-term fiscal stimulus despite adverse impact on the deficit, concerns remain about the federal government's long-term fiscal situation. Rising costs of federal health care programs and baby boomer retirements present further challenges to fiscal stability. Operating these programs in their current form may pass substantial economic burdens to future generations. 

The Obama Administration released its FY2011 budget on February 1, 2010. The main policy initiatives emphasized in the President's Budget include the creation of a fiscal commission tasked with improving the fiscal stability over the long term, other deficit-reduction proposals, ongoing economic recovery, and a continuation of health care reform, clean energy, and education initiatives. 

On April 22, 2010, the Senate Budget Committee reported the FY2011 budget resolution (S.Con.Res. 60) by a vote of 12-10. The resolution provided for revenue levels of $1,838 billion and outlays of $3,191 billion in FY2011 for a deficit of $1,260 billion, or approximately 8.4% of GDP. On July 1, 2010, the House adopted a budget enforcement resolution (H.Res. 1493), which established top line discretionary spending levels for FY2011 for House appropriators. 

This report provides an historical overview of the budget trends through the most recently completed fiscal year (2009). It discusses major budgetary challenges over the past several fiscal years given the current economic conditions and provides an in-depth discussion of the FY2011 budget process. Finally, it provides context for the issues facing the country's federal budget over the long term.

Date of Report: August 4, 2010
Number of Pages: 24
Order Number: R41097
Price: $29.95

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